What's happening
This bill prohibits municipal governments from compensating auditors on a contingency or results-based fee for tax audits.
Why it matters
Reduces potential conflicts of interest. By banning contingency or results-based fees for tax auditors, the bill aims to eliminate auditors’ financial incentives to maximize assessments, which could lead to overly aggressive or unfair audits.
Could increase trust in local tax audits. Residents and businesses may view municipal tax audits as more impartial and less driven by profit motives, potentially improving public perception of local government fairness.
May impact municipal budgets and audit practices. Local governments might need to adjust how they hire and pay for audit services, possibly leading to higher upfront costs but reducing the risk of costly legal challenges or reputational harm from biased audit practices.
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Who cares
Headline styles
Ban Contingency Audit Fees
Plain English, a few words. Used as the page title.
Sponsors
No co-sponsors yet.
History
- Referred to local government
- Print number 5508a
- Amend and recommit to local government
- Referred to local government
Companion bill
The same bill in the other chamber. A bill becomes law when one version passes both houses and the governor signs it, so either number can carry it.
Ban Contingency Audit Fees
In Assembly Committee · Local Governments · Sponsor Albert A. Stirpe
Full text
1 pageUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
5508--A
2019-2020 Regular Sessions
IN SENATE
May 3, 2019
Introduced by Sen. METZGER -- read twice and ordered printed, and when printed to be committed to the Committee on Local Government -committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee
AN ACT to amend the general municipal law, in relation to prohibiting compensation for service of auditing relating to any tax on a contingency basis
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. The general municipal law is amended by adding a new section 39-a to read as follows:
§ 39-a. Prohibition on contingent compensation. Notwithstanding any inconsistent provision of law, a municipal corporation shall not compensate any person or entity for the service of auditing a return or report filed pursuant to, or in compliance with, any law in whole or in part on a contingent fee basis or on any other basis related to the amount of tax, interest, or penalty assessed against or collected.
§ 2. This act shall take effect immediately.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD11126-03-9
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
Title of bill
An act to amend the general municipal law, in relation to prohibiting compensation for service of auditing relating to any tax on a contingency basis
PURPOSE OR GENERAL IDEA OF BILL::
The purpose of the bill is to prohibit municipalities from compensating private auditors on a contingent fee basis.
SUMMARY OF SPECIFIC PROVISIONS::
Section 1 - Amends Article 3 of the general municipal law by adding a new section 39-A to prohibit municipalities from compensating private auditors on a contingent fee basis.
Section 2 - Effective date.
Justification
Currently, municipalities are allowed to hire private auditors to exam- ine certain returns and are paid, in some cases, a contingent fee for their services. State and local jurisdictions have supplemented their audit activities by engaging independent third-party tax auditors. In some cases, the third-party auditors are paid via contingent fee arrangements (i.e., a fee in exchange for a percentage of the increased taxes, fees or other amounts collected).
The use of third-party tax auditors is commonly used in the area of unclaimed property or escheated property. State and local jurisdictions also utilize third-party tax auditors with respect to local property tax audits, sales and use tax audits, and transfer pricing audits. A contin- gent fee audit arrangement raises a number of concerns for taxpayers. This type of arrangement, creates an incentive for the contract auditor to assess the highest amount of tax and to interpret the statutes and regulations in an aggressive manner in favor of the jurisdiction. In addition, the contract auditor does not have an incentive to inform the taxpayer of potential overpayments, missed deductions, tax credits or refund claims. Data security is also a concern.
In addition, taxpayers have challenged the use of contract auditors in judicial proceedings. For example, in the District of Columbia, taxpay- ers have challenged the ability of contract auditors to use specific transfer pricing methods at audit.
North Carolina, Arizona, South Carolina and Pennsylvania have enacted legislation against this practice.
PRIOR LEGISLATIVE HISTORY::
New Bill
FISCAL IMPLICATIONS::
None
EFFECTIVE DATE:: This act shall take effect immediately
Summaries, headlines and scores are AI-generated from the official bill text. How we score bills. Source: NYS Open Legislation.